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Sales tax coffers could get boost with new law

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* AP

Amazon will start collecting sales tax from Illinois consumers next month to comply with a new state law.

Amazon spokesman Ty Rogers said Friday the online retailer will be required to collect the 6.25 percent tax starting Feb. 1. The Amazon spokesman says the online retailer “offers the best prices with or without sales tax.”

Illinois lawmakers passed the measure last summer after the Illinois Supreme Court threw out an earlier attempt at legislation. The court ruled the earlier law violated federal rules against “discriminatory taxes” on digital transactions.

* Crain’s

The law went into effect Jan. 1, but the state granted a month-long grace period to online retailers.

“It demonstrates real responsibility on the part of Amazon to collect these taxes before they even lay a brick in Illinois,” said Rob Karr, president of the Illinois Retail Merchants Association, which has long been in favor of such legislation. He was referring to the e-commerce giant’s decision, announced last fall, to build at least one distribution facility in Illinois.

It remains to be seen whether the new tax will aid Illinois bricks-and-mortar retailers, Karr said, “What does help now is that the tax code is no longer picking the winners and losers.”

That new facility meant the company would have to start collecting sales taxes anyway because they’d have an Illinois nexus. Wisconsin projected a $30 million boost when the state began collecting sales taxes from Amazon, but money could just shift around online

Amazon sales are likely to decline about 10 percent in Illinois if its pattern follows those of other states, according to Itzhak Ben-David, an associate professor of finance at Ohio State University who studied the effect of the Amazon tax issue on consumer behavior in five states that implemented online sales tax laws from 2012 to 2014.

“The decline was most dramatic for large purchases,” Ben-David said in an interview. For example, he and colleagues measured a sales decline of nearly 25 percent on purchases of $300 or more.

“These results suggest that sales tax is an important factor in the eyes of consumers,” he said.

Those consumers flee Amazon for other retailers, though they tend to stay online. The study found a 2 percent uptick in purchases at local brick-and-mortar retailers and an almost 20 percent increase through the online operations of competing retailers.

More and more people want to - and like to - shop online if they can. That trend can’t be halted. But Amazon has been a huge sales tax avoider over the years, so this is welcome news. Now, the Congress need to even the playing field. Sen. Durbin and Congressman Schock recently penned an op-ed on this topic

A bipartisan bill, known as the Marketplace Fairness Act, to level the playing field for the small businesses in communities like Springfield has the opportunity to become law.

It’s an effort we are working on together — along with many of our Illinois colleagues — to get over the finish line this Congress.

Main Street businesses have a hard time surviving when their stores become showrooms, where people come in, look around, even try out merchandise, and then leave to buy the product online to avoid paying state taxes.

This online sales tax loophole is giving online retailers a 5- to 10-percent price advantage over their Main Street competitors, and it needlessly is putting people out of business in Illinois and across the country.

posted by Rich Miller
Monday, Jan 26, 15 @ 12:27 pm

Comments

  1. Cue the frantic ads and emails in 3,2,1…

    ==Aaron Schock wants to raise your taxes==

    /s

    Comment by Formerly Known As... Monday, Jan 26, 15 @ 12:34 pm

  2. Equal taxation indeed important. My industry doesn’t really get affected much by this, but there are plenty of fellow local businesses that have had to watch their online competitors dodge having the collection responsibilities that local shops are tied to.

    It is also a glimpse into how much tax policy can affect consumer choices. If Amazon loses enough sales to online competitors, will it eventually support federal action to equal the playing field? Intriguing.

    Comment by liandro Monday, Jan 26, 15 @ 12:37 pm

  3. I thnk this online shopping thing is going to make it. They can handle a level playing field.

    Comment by Wordslinger Monday, Jan 26, 15 @ 12:38 pm

  4. Is the estimated online purchase tax of .06% or whatever it was going away now?

    Comment by Stuff Happens Monday, Jan 26, 15 @ 12:58 pm

  5. Isn’t it more environmentally friendly to discourage a bunch of redundant brick and mortar shops in each community?

    Comment by Confused Monday, Jan 26, 15 @ 12:58 pm

  6. I’m a guy. I hate shopping. So I did everything by cellphone online this year for Christmas. Got the best gifts, best prices, wrapped, carded and delivered.

    You want me to pay more for that? Sure! No problem. The moment I even try driving around during Christmas to find a parking spot to find a gift that probably isn’t in stock - well, I’m more than glad to shop online.

    The difference between tax and non-tax is what you can save by putting an item into your shopping cart, and then waiting a week or two - the price will come down as soon as someone selling that item discovers you as a potential customer, saving you the tax difference.

    Comment by VanillaMan Monday, Jan 26, 15 @ 1:04 pm

  7. I absolutely think collecting online sales tax will net a lot of new revenue for the state. It’s about time Amazon had to play by brick and mortar rules.

    Comment by PublicServant Monday, Jan 26, 15 @ 1:11 pm

  8. Long.Overdue.

    Comment by Left Leaner Monday, Jan 26, 15 @ 1:13 pm

  9. I think this internet thing is going to catch on.

    Comment by Just Observing Monday, Jan 26, 15 @ 1:18 pm

  10. The revenue should not be a significant increase since I know we all of us are claiming our purchases when we file our state returns and pay our taxes at that time as obligated by previous state laws.

    Comment by illilnifan Monday, Jan 26, 15 @ 1:23 pm

  11. I do a lot of online shopping because I live in a rural area.

    Personally, I don’t like the new sales tax but it is much more fair to local retailers as well as state governments.

    Comment by Federalist Monday, Jan 26, 15 @ 1:29 pm

  12. Not a subscriber but breaking news re U.S. Supreme Ct. decision on retiree health benefits–private sector

    Comment by No name Monday, Jan 26, 15 @ 1:42 pm

  13. I don’t really consider this a “new” tax on people since they are supposed to be paying it now anyway.

    Comment by Demoralized Monday, Jan 26, 15 @ 1:44 pm

  14. It’s not a new tax! It’s an end to dodging the old one. Good for Amazon. Good for Illinois. They’re in an easier situation to do the accounting than even a brick and mortar place. It’s about time.

    Comment by A guy Monday, Jan 26, 15 @ 1:53 pm

  15. What people forget is that Illinois businesses could get the same benefit by selling online to residents of other states, who don’t pay tax on such purchases. It’s not just a one way street, and many brick and mortar stores do also sell online.

    Comment by Put the Fun in unfunded Monday, Jan 26, 15 @ 2:04 pm

  16. Last couple of years the IL income tax form allowed for residents to calculate on-line tax free purchases and then pay them either by reducing a refund or increasing the tax payment. Didn’t everybody follow this and pay their fair share? (snark only if you want it to be)

    Comment by Biliary Sludge Monday, Jan 26, 15 @ 2:08 pm

  17. ===You want me to pay more for that?===

    Hey VanillaMan, are you paying the sales taxes you owe the state for all of your on-line purchases?

    If you’re obeying the law, then no, we don’t want you to pay more to shop on-line. Just pay what you owe and enjoy the convenience of it all.

    Comment by 47th Ward Monday, Jan 26, 15 @ 2:14 pm

  18. I have moved probably 50% of my shopping on-line. The sales tax won’t matter. On-line shopping is more convenient for numerous household and personal items. Better price. Better selection. Faster. No parking. No lines.
    Once you get yourself habituated to the bit of planning required due to shipment time, you’ll be hooked.

    Comment by Cook County Commoner Monday, Jan 26, 15 @ 2:15 pm

  19. @A guy1:53,=It’s not a new tax!=

    It is a new tax, based on taxing by a company that has no physical presence in Illinois. These companies do not cost the state and local governments anything. Brick and mortar stores cost local police, fire, paramedics, etc., and cost the state by keeping employees hours and wages low enough that they are on Medicaid.(They know who they are.)

    Once a company has a physical presence in Illinois, they must charge tax to goods they sell to customers in Illinois. That is how it has always been. For Amazon, it is almost a moot question because they will have a physical presence in Illinois very soon.

    Comment by DuPage Monday, Jan 26, 15 @ 2:19 pm

  20. Here’s the angle on the LOCAL portion of the sales tax.

    According to a recent memo shared by City of DeKalb, the Department of Revenue issued rules in 2014 for where the local portion of sales tax on Internet sales. It’s a 5-factor test of:

    1) Where sales persons who solicit the orders are located.

    2) Where the seller takes action to accept the sale.

    3) Where payment is tendered and received or where invoices are sent from.

    4) Where tangible inventory is located.

    5) Where the seller’s headquarters is located.

    Any locality that can wrangle 3 out of 5 of the above conditions captures the local portion of the sales tax.

    Just this month, DeKalb passed a resolution to deal with a third party who says a national retailer is interested in setting up an Internet sales office in DeKalb. Why DeKalb? It’s because the city’s home rule sales tax is one of the highest around, and ultimately the expectation is that the local sales tax collected will be shared with the retailer.

    In fact, it’s already pretty hardball — they were talking at the council meeting about 85% of the local sales tax going to the retailer, with DeKalb picking up about $200,000 per national retailer per year.

    Considering the RTA is suing DeKalb County and a neighboring community over remote office jet fuel sales, such an arrangement seems risky, but perhaps somebody knows something I don’t about how remote fuel sales differ from remote sales of other goods.

    Comment by yinn Monday, Jan 26, 15 @ 2:21 pm

  21. Doesn’t impact me personally. In this [one] instance I’m part of the 1%! I’ve always fully reported AND PAID my use tax on out-of-state purchases.

    Comment by Out Here In The Middle Monday, Jan 26, 15 @ 2:22 pm

  22. I have always paid the estimated use tax on out of state purchases located on the Illinois 1040. Since almost all my out of state purchases were from Amazon, I will stop paying that.

    Comment by DuPage Monday, Jan 26, 15 @ 2:35 pm

  23. Public Servant - I agree 100%. That is also one of the things that drives me nuts about the IPI’s never-ending crusade on behalf of food trucks and coffee delivery people and whatever else. Every brick & mortar eating establishment in Sangamon County has to pass inspections and follow health department codes/regulations. Why should a local food truck owner-operator be any different? The same goes for online retailers. The pro-business crowd who clamors for “fairness” needs to remember that word when advocating for preferable treatment.

    Comment by Team Sleep Monday, Jan 26, 15 @ 2:49 pm

  24. === DuPage - Monday, Jan 26, 15 @ 2:19 pm:

    @A guy1:53,=It’s not a new tax!=

    It is a new tax, based on taxing by a company that has no physical presence in Illinois. ===

    Sorry friend, it is not a new tax. It’s a new policy in how it gets collected. You’re right about the part where it stipulates “if you have a physical location”, but that applies to the retailer being “required” to collect the tax and pay the state. There has never been a provision to say there is “no sales tax”, just the impracticality of getting people to pay it on the honor system without requiring the retailer to collect it and pass it on to the state.

    I repeat, it’s not a new tax, it’s just become more collectible. Which is good.

    Comment by A guy Monday, Jan 26, 15 @ 3:19 pm

  25. Seems fair to me, Amazon sails will not go down, and the brick and mortar store get the field leveled. And we can use the money.

    Comment by Mokenavince Monday, Jan 26, 15 @ 3:28 pm

  26. Soeaking for myself, this makes it more likely i will buy from them now :)

    Comment by Ghost Monday, Jan 26, 15 @ 3:41 pm

  27. ==But Amazon has been a huge sales tax avoider over the years==

    Amazon has not been avoiding taxes, they have been avoiding collecting taxes. The taxes have always been there. Now instead of the consumer being liable for the “use tax” the online retailer will be responsible for the “occupation tax”. The state tax base will be a net winner, but not local retailers, because most people don’t shop on line to avoid taxes but for the convenience of it.

    This has never REALLY been about the “little guy” but about the competitive advantage one big guy (online retailers with no physical presence) had over another big guy(online retailers with physical presence ie. target, best buy, walmart, etc.)

    The big box retailers are using the main street retailers to win their argument, when in fact they pose more of a threat to main street than any online retailer.

    Comment by Jaded Monday, Jan 26, 15 @ 3:42 pm

  28. “Every brick & mortar eating establishment in Sangamon County has to pass inspections and follow health department codes/regulations. Why should a local food truck owner-operator be any different?”

    Well, if a (hypothetical) statute sez that you must have the item available for physical inspection and have the price cleared marked on the packaging, then an on-line retailer *cannot* comply.

    Similarly, if the health department code requires that a bathroom is available “on premises” and there must be a sewer-connected floor drain in the kitchen, a food truck *cannot* comply.

    If there were *comparable* requirements providing the same level of consumer protection/food safety, that then works. And anything that is applicable to, and possible for compliance for, both sets of businesses (eg, collection of sales tax), then absolutely those things should apply across the board.

    Comment by Chris Monday, Jan 26, 15 @ 3:42 pm

  29. @AGuy

    There has never been a provision to say there is “no sales tax”, just the impracticality of getting people to pay it on the honor system without requiring the retailer to collect it and pass it on to the state.”

    Explanation please. I was under the impression that in prior years, before the reporting legislation, that a sales tax was levied only if the sale was made in Illinois. I other words, if I bought something in Missouri I did not pay a sales tax. Online had nothing to do with it- as I said prior to recent legislation requiring reporting. And I believe I am correct about that.

    If so it depends on what time frame you consider it a new tax. Under most recent legislation you are correct, in my opinion, but Dupage has a point also. At least it is a relatively new tax.

    if I am wrong in my analysis, please correct me. Always good to learn something.

    Comment by Federalist Monday, Jan 26, 15 @ 4:00 pm

  30. ===Always good to learn something.===

    Then learn how to use Google.

    http://www.revenue.state.il.us/Individuals/Illinois-Use-Tax.htm

    Comment by 47th Ward Monday, Jan 26, 15 @ 4:09 pm

  31. If I have to pay sales taxes I’ll just go to micro center or best buy and save the shipping costs.

    What about kindle eBooks or audible audio books? Where is there point of sale?

    Comment by ROLLO TOMASI Monday, Jan 26, 15 @ 6:34 pm

  32. For any purchase, it’s the bottom line cost that is the major factor in making the purchase decision. It will continue to be so tomorrow, or February 1st for that matter.

    Comment by PublicServant Tuesday, Jan 27, 15 @ 5:04 am

  33. One word response–Alibaba.

    Comment by Robo Tuesday, Jan 27, 15 @ 10:27 am

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